Will Amazon Run Out Of Places To Operate Its Business?

By Douglas A. McIntyre Updated Feb 11, 6:46AM EST · Published Feb 11, 5:36AM EST

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Amazon.com (NASDAQ: AMZN) will close a distribution center in Texas and will almost certainly not have any employees in the state ever again. Texas will need to provide unemployment benefits to some of these people.

Texas presented the world’s largest e-commerce company with a tax bill for $269 million last year. It covered, the state said, sales tax on untaxed items sold by Amazon to Texas residents. It is hard to imagine how Texas came up with the figure, but it set off a battle in which Amazon threatened to shutter its operations there.

The National Conference of State Legislatures recently did a study which showed the deficit burdens of most of its members could be lessened, significantly in some cases, if all e-commerce sales made within their borders were taxed. The US Congress has taken up the issue more than once. Legislation which taxes e-commerce sales by state would be challenged in the court system by firms like Ebay (NASDAQ: EBAY) and Amazon.

Online retailers often have employees in several states. Amazon has 35,000 workers and the logistics of its business require that it has distribution outside its home state of Washington.

The leverage the states have over e-commerce companies is two-fold. The first is that they can present Amazon with tax bills which will certainly rise over time. States could charge interest and penalties on this money if it goes unpaid. A court decision in favor of the states could cost the e-commerce industry billions of dollars and ongoing tax payments which would erode their margins permanently.

The other important power the states have is that the logistics operations of companies like Amazon have to be located somewhere. Amazon will eventually be tripped by its own infrastructure needs.

Amazon’s game of chicken with the states is not one it will win.

Douglas A. McIntyre

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.